BAGHDAD — The Iraqi government has approved in principle a deal potentially worth billions of dollars with Royal Dutch Shell to exploit the immense amount of natural gas in southern Iraq that is now being flared off.

Under the agreement approved Sunday, Shell will build the infrastructure to capture and purify the 700 million cubic feet of gas now being burned off every day at the southern oil wells to relieve pressure on the reservoirs below.

"That's about the same amount of energy used to provide domestic power to the whole of Iraq," said a Shell official who spoke on background, citing company policy. "It's a very valuable resource going wasted in the absence of gathering infrastructure . . . Just look on Google Earth, particularly at night — it's lit up with gas flares."

It was unclear whether the natural gas deal was a production-sharing agreement, under which Shell and Iraq would share profits, or a service contract similar to one signed last month with a Chinese company under which the company would receive a fixed payment.

Last year, Iraq flared off almost half of all the natural gas it produced, far more than the OPEC average, losing millions of dollars in potential income every day.

Iraq has the third-largest proven crude-oil reserves in the world, behind Iran and Saudi Arabia, but years of sanctions and mismanagement left its hydrocarbon infrastructure in disrepair, and violence and sabotage have slowed efforts to improve it.

That may be changing. Last month, Iraq signed a $3 billion service contract with China to develop oil fields near Baghdad. Shell is also negotiating contracts to develop the Missan and Kirkuk oil fields.

Abdul Jabbar al-Hilfi, professor of energy studies at the University of Baghdad's Arab Gulf Studies Center, described the agreement as a service contract, and said some of the gas would be piped through Turkey to Europe.

"I know this is only one step," he said. "We are going to have more contracts with more companies — British, Dutch, American. The prime minister is trying to have more than one company to avoid a monopoly."

Meanwhile in Baghdad, Iraqi government bodyguards shot and killed a pedestrian and wounded a policeman in an incident recalling the assaults in the past year involving U.S. security firms.

The guards for the Minister of Displacement and Migration opened fire on drivers and pedestrians on a downtown street after a driver was slow to get out of the way of their convoy, police and eyewitnesses said.

One woman was killed and six people injured, according to an official in the Iraqi-run Baghdad Operations Center.

The Minister was out of the country at the time, and government spokesman Ali Dabagh did not answer repeated requests for comment.

"I saw guards carrying machine guns shooting randomly," said a police officer who was at the scene but asked not to be named because he is not authorized to speak to journalists.

"First, they killed a woman who was trying to cross the intersection. After that they opened fire on the traffic policeman who was doing his job. They shot him twice and he was injured. He fell down on the street. Then they left the cars and were walking with machine guns and pistols in their hands."

Husam Mazin, another witness, was selling sodas nearby when the shootings took place. "How can we blame Blackwater and the American soldiers for killing Iraqis in cold blood when today guards killed a woman and injured others for no reason but to have the street clear for them?" he asked.

Iraqi media reported that some of the guards had been arrested, but this could not be confirmed.

(Spangler reports for The Miami Herald. Kadhim is a McClatchy special correspondent in Baghdad. Correspondent Laith Hammoudi contributed to this article.)

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